Contributing Writer: Thomas Hadcock | May, 2024
“To secure cooperation in the area, flyers were distributed with cartoons of trees growing in the shape of dollar signs.” – Heidi Blake, The New Yorker
The world is grappling with the looming and immediate threats posed by climate change and all its concomitant environmental issues. To meet this diverse array of threats, a diverse set of solutions are being proposed, implemented, and studied. In the private sector, an alphabet soup of acronyms is being cooked up, each related to enforcing or guiding corporate sustainability (ESG: Environmental Social Governance, SBTi: Science Based Targets initiative, CDP: Carbon Disclosure Project). Due to this industry’s infancy and the rapid change occurrings, corporate sustainability is difficult to understand and approach.
Nevertheless, businesses are taking action to reduce their climate impact, and one of the tools they employ is carbon offsets (balancing out businesses’ emissions by paying for reductions elsewhere). Of course, even Taylor Swift is making headlines with her use of offsets. However, offsets are the focus of recent public scrutiny: a recent Guardian article claimed 90% of offsets were “worthless.” Despite the bad press, the voluntary carbon market is lauded for its enormous potential and is already playing a part in the transition away from fossil fuels to a more sustainable future.
In this article, I briefly explain the concept, its justifications, pitfalls, and future role. It’s clear that due to poor early practices and examples in the industry, public concern over greenwashing and the ‘license to pollute,’ nagging methodological issues, and uncertain climate impact, the carbon offset market has a long way to go in securing legitimacy.
What is the Voluntary Carbon Market?
Ostensibly due to altruistic reasons, but more likely growing shareholder and consumer pressure, and increasingly financial reasons (both risk avoidance and higher returns), many businesses are choosing to reduce their emissions. Net Zero Tracker, a database put together by academics and nonprofits, says that over half of the roughly 2,000 largest publicly traded companies have issued climate plans.
Often the practice of reducing emissions comes down to an accounting challenge, where businesses track down their emissions, and either reduce them by changing their practices or ‘offseting’ the remaining ‘hard to abate/reduce’ emissions. This leads to terms you may have been hearing like ‘carbon neutrality’ or ‘net-zero.’
Plainly, carbon offsets are the idea that a company can pay for an entity to reduce emissions elsewhere, to make up for their own emissions. These are usually avoided credits – paying for a portion of a forest not to be cut down, thereby avoiding emissions, reduced emissions, or removed – likely through direct air capture or afforestation.
The first occurrence of offsets was in the CDM (Clean Development Mechanism), a compliance (or regulated) market created by the Kyoto Protocol. The voluntary carbon market is different, allowing companies to purchase offsets on their own accord without the purpose of satisfying compliance. The market(s) consists of several players: verifiers that certify that credits meet standards, brokers and marketplaces where buyers and project developers trade, and rating agencies that assess and rate credits.
Potential
A report from the Boston Consulting Group (written in partnership with Fossil Fuel giant Shell) says that the market is “thriving,” growing by four times from 2020 to 2021 and projected to reach between $10 and $40 Billion in investment. The Nature Conservancy plans to continue using offsets for the conservation co-benefits and their intermediary ability as more substantial time-consuming emission reductions occur.
Additionally, in response to criticism of poor-quality credits and the ‘license to pollute,’ or greenwashing claims, Sylvera, an early leader in verification, released a report commenting that the companies that invested most in offsets are also the ones investing most in directly reducing emissions.
Furthermore, many carbon credit projects are created or implemented in developing countries, and they are suggested to provide both low-carbon technologies and significant capital to these nations. Due to this potential upside, the UN’s Development Program launched an initiative to increase access to carbon markets in developing countries at COP28 in Dubai.
The demand for carbon offsets is large, and whether the climate impact is real or imagined, the money is flowing into the market. Take this with an immense grain of salt as the backing of the fossil fuel industry and a report by a carbon credit verification agency are clearly not objective sources.
Big Concerns
Zooming out for a moment, the idea of offsetting does seem to be a shaky premise. The idea that you can do something ‘bad’ (emit carbon) and then compensate with ‘good’ (reducing, removing, or avoiding emitting) elsewhere to claim ‘neutrality’ is a stretch. Especially given that a ton of carbon from burning fossil fuels is not the same as a ton of carbon in the forest. This is because forest carbon is temporary, whereas atmospheric carbon is permanent, and so using temporary reduction to justify permanent pollutants does not check out.
Temporality is just one of several problems nagging the industry. From its inception, credibility has been the utmost concern, with verification companies like early pioneer Sylvera offering to stamp their approval on projects to create a system of standardization. However, after its founding in 2020, it has been estimated that about eighty percent of the forest-carbon projects it rated were likely over-crediting. Earlier cases of poor practices…
Over-crediting, where suppliers disseminate far too many credits (tons of carbon) than the project truly sequestered is all too common. Similarly, double counting is a problem where projects are included in private companies’ net zero claims as well as the host nation’s claims. The true climate impact of offset projects is also heavily debated, with studies finding that there is no or even a positive amount of emissions from credit projects. Others claim that because of these reasons, they are incompatible with the goals of the Paris Agreement.
What does High-Quality mean?
For these reasons, new groups such as the Taskforce On Scaling Voluntary Carbon Markets are focusing on credibility and ensuring only ‘high quality’ offsets prevail in the market. High-quality credits are those that pass the screening of verification organizations and uphold several main qualities. 1) Additionality: the carbon reduction would not have occurred without the investment 2) Leakage: emissions are not just moved across the project boundary or redistributed elsewhere 3) Quantification: credits aim for measurements in metric tons of CO2, but arriving at this precise number is often difficult, and measurement techniques vary. 4) Vintage, or the year the credit was produced, which is more likely to be quality the more recent the project given more strict verification.
Although ‘quality’ is being defined more clearly, the rapid innovation occurring in the industry makes standardization and verification difficult.
More Concerns
Along with the Taskforce on Scaling Voluntary Carbon Markets in 2021, two more initiatives arose to facilitate higher standards. The Voluntary Carbon Markets Integrity Initiative sets guidelines to “deter corporations from making vacuous claims about the benefits of offsetting,” and the Integrity Council for the Voluntary Carbon Market announced a set of “Core Carbon Principles” to assess the quality of existing schemes.”
Despite movement to bolster legitimacy, remnant bad press and nagging issues continue to plague the industry. United Airlines CEO Scott Kirby says a “majority of offsets are a fraud,” overall confidence in the industry is falling, many multinational corporations are disinvesting, and prices have fallen to their lowest level ever, reflecting the quality concerns.
Joseph Romm from the Penn Center for Science, Sustainability, and Media argues that Carbon Offsets are unscalable, unjust, and unfixable. Romm writes that the fact that additionality, double counting, and other problems continue to plague projects after decades of innovation, suggests that the problems are “intractable.” Romm also points to a wave of litigation and reputational risks as another barrier to the future of the market.
Conclusion:
The future seems uncertain for the voluntary carbon market, but money still is flowing its way, and action on climate change is needed. The common thread seems to be that offsets do direct money towards climate solutions, but at what cost? The questionable alliance with the fossil fuels industry seems to reveal the offset industry’s securing of the status quo.
Mark Kenber, the executive director of the new Voluntary Carbon Markets Integrity Initiative, sums it up well, saying, “A separate carbon market for voluntary projects made sense in the early years of fighting climate change at the corporate level, when any kind of effort was better than nothing.”
However, it’s more necessary and clearer than ever that companies and nations should direct most of their attention to reducing their emissions directly, and voluntary offsets should only be used carefully in addition to this goal. In this transitory period, when all sorts of climate solutions exist, the highest quality offsets can help in the interim as nations and companies steer their ships towards a more renewable, sustainable future.
REFERENCE
Greenfield, P. (2023). Revealed: More than 90% of Rainforest Carbon Offsets by Biggest Certifier Worthless, Analysis Shows. The Guardian. https://www.theguardian.com/environment/2023/jan/18/revealed-forest-carbon-offsets-biggest-provider-worthless-verra-aoe
Blake, H. (2023). The Great Cash-For-Carbon Hustle. The New Yorker. https://www.newyorker.com/magazine/2023/10/23/the-great-cash-for-carbon-hustle
Ramesh Walsh, V. and Toffel M. (2023). What Every Business Leader Needs to Know About Carbon Credits. Harvard Business Review. https://hbr.org/2023/12/what-every-leader-needs-to-know-about-carbon-credits
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“Carbon Credits: Permission to Pollute or Pivotal for Progress? (2022). Sylvera Report. https://www.sylvera.com/resources/carbon-credits-and-decarbonization
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Romm, J. (2023). Are carbon offsets unscalable, unjust, and unfixable—and a threat to the Paris Climate Agreement? Penn Center for Science, Sustainability, and the Media. https://bpb-us-w2.wpmucdn.com/web.sas.upenn.edu/dist/0/896/files/2023/06/OffsetPaper7.0-6-27-23-FINAL2.pdf
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“UN Development Programme launches plan to boost integrity in carbon markets and increase access to finance schemes for developing countries.” (2023). https://www.undp.org/press-releases/un-development-programme-launches-plan-boost-integrity-carbon-markets-and-increase-access-finance-schemes-developing-countries
Net Zero Tracker https://zerotracker.net/
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